Asia-Pacific

UN Concerned about Weak Trade Performance in Asia-Pacific

By Devinder Kumar

BANGKOK (IDN) -- The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) highlights in a new report that the region’s trade flows are wavering amid sluggish global economic and trade growth, downward movement of world commodity prices and an uncertain policy environment.

According to ESCAP's Asia-Pacific Trade and Investment Report 2016 released on November 29, the volume of exports of goods increased by 3 per cent in 2015, the nominal value of exports and imports by the region experienced a significant decline, of 9.7 per cent and 15 per cent, respectively.

Sluggish growth in trade is expected to continue through to the end of 2016, says ESCAP News citing the report. Recovering somewhat, exports are expected to increase by 4.5 per cent and imports by 6.5 per cent in developing countries of Asia and the Pacific in 2017. But the Report forecasts more modest growth in exports and imports in volume terms, at 2.2 per cent and 3.8 per cent, respectively.

“Trade is the key driver of economic activity in Asia and the Pacific,” said Dr. Shamshad Akhtar, Under-Secretary-General of the United Nations and Executive Secretary of ESCAP.

“The region’s economic and trade dynamism is confirmed by the steady rise in region’s share to 40 per cent in global exports. Even if the regional significance in global trade scene is maintained, the fall in share of exports as a proportion of GDP (gross domestic product) from the 67.5 per cent pre-global crisis level to 52.9 per cent in 2015 is a cause of concern.

"To their credit, most Asian exporter economies have decoupled from economic cycles in traditional exports markets, that is, the United States and the European Union, not only diversifying their export markets but also boosting domestic consumption and the services sector.

"Notwithstanding, the region has the potential to regain the trade momentum so critical for sustainable development and lead by example, especially if we are to ensure that our future is sustainable and that our societies are more equal.”

On the positive side, the Report reveals that the region has improved its market share in the commercial services trade, with the services trade more than doubling between 2005 and 2015, from just under USD 600 billion to nearly USD1400 billion. These aggregates however conceal the fall in the region’s export and import of services by 4.5 per cent and 4.9 per cent in 2015, respectively, compared with the previous year, mainly due to persisting economic uncertainty resulting in the global decline in merchandise trade and a depressed demand for the services sector including transport.

The Report indicates that while foreign direct investment (FDI) has modestly increased, its share in global FDI inflows has shrunk from 42 per cent in 2014 to 32 per cent in 2015, in spite of growth of 26 per cent in greenfield FDI inflows. FDI outflows from Asia and the Pacific also dropped by 22 per cent in 2015 to $US 435 billion.

East and North East Asia emerged as a major recipient once again as FDI inflows jumped to 53 per cent with Hong Kong benefiting and accounting for three-fourths of Asia-Pacific FDI inflows. South Asia and South West Asia recorded a modest increase, with FDI growth in India standing out. FDI inflows continued to contract in 2015 in the Pacific and North and Central Asia.

Furthermore, the region is leading a movement toward liberalization, promotion and facilitation of investment. In 2015, countries adopted 46 investment policies, accounting for almost half of the global total, and contributed to 13 international investment agreements (IIAs), out of 19 IIAs entering into force globally.

In addition, in order for FDI to transform into sustainable development outcomes, international investment regimes must increasingly pay attention to preserving the regulatory space of host countries, in addition to recognizing the original focus on provisions for investment protection and promotion.

Prospects for the trade sector could change over the medium term, should Asia and the Pacific manage to expeditiously launch programs to reduce trade costs through electronic trading and other reduced trade and transit barriers and direct investments in diversified sectors, and by nurturing regional value chains to improve the region’s productive and trade competitiveness.

To this end, the Report finds that some positive gains have been achieved in trade facilitation, with over two-thirds of the Asia-Pacific members of the World Trade Organization (WTO) ratifying the WTO Trade Facilitation Agreement. Complementing these efforts, the “Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific” was adopted by ESCAP member States in May of this year at the 72nd Commission Session and is expected to help maintain regional trade competitiveness.

A worrying trend on another front is the increased usage of restrictive trade policies—especially non-tariff measures – within the Asia-Pacific region, which is partly driven by past distortive trade measures and current excess capacity in several key sectors.

Additionally, the region is seeing a proliferation of preferential trade agreements (PTA), with Asia and the Pacific, contributing to almost 63 per cent of world PTAs, curbing a momentum towards region-wide free trade. In this context, the Report underscores that more efforts must be made to consolidate pre-existing bilateral agreements among members who are also part of free trade agreements. On this issue, ASEAN and its partners can lead the change.

Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific “Trade is the key tool that governments should utilize to ignite growth. Efforts must be increased in implementing trade liberalization policies and deepening regional integration if we are to ensure that the region’s growth maintains an upward trajectory, and that the development gains we have worked so hard to achieve continue unimpeded” said Dr. Akhtar. [IDN-InDepthNews – 30 November 2016]

Photo: The latest edition of the Asia-Pacific Trade and Investment Report underscores concern for weak trade performance in the region as well as the issues related to investment and trade costs. Image credit: ESCAP